Capitalism and the Economy Chapter 10 Lecture PowerPoint © W. W. Norton & Company, 2008.

Capitalism and the

Economy

Chapter 10

Lecture PowerPoint

© W. W. Norton & Company, 2008

Economic Systems Production and distribution of goods and

services Capitalism – based on private property,

competition, and profit Socialism – based on public ownership,

public control, and social welfare These are supported by and interconnected

with political systems and culture

Comparison of two types of economiesCapitalism Socialism

Who owns property?

Private individuals and corporations.

Citizens, represented by the state

How does it benefit society?

Working for self interest causes competition, which results in better products at lower prices

More equal distribution of wealth, fair pay and benefits for workers

What are some deficiencies?

Imperfect competition; control by monopolies and oligopolies; concentration of wealth among elite.

Imperfect distribution, lower wages than in capitalist systems, lower productivity, bureaucracy

What is role of government?

“Hands off,” but some monetary policy, tax & tariff, fiscal policy interventions acceptable

Control over production and distribution, exists for benefit of workers

A Brief History of Capitalism

You May Ask YourselfCopyright © 2008 W.W. Norton & Company, Inc.

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Feudal system preceded capitalism in Europe Everyone owned some property or products produced on

others’ property. Most could support selves 15th century: enclosure movement, forced people

off what had been public land sent them looking for work in cities. Provided labor force needed for industrialization

A Brief History of Capitalism


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18th century - agricultural revolution – new technology: Increased population growth (nutrition, lower mortality) Increased value of land Created manufacturing and transportation technology -

need for tools, equipment, transportation, labor pool to fill new jobs

Transition from barter to legal currency Transition from agreements between individuals to

contracts between corporations

A Brief History of Capitalism 20th century – shifts in producers, products:

International trade: manufactured goods to capital to information

Dominant actors: powerful families to individuals to corporations (esp. banks)

Management: top down to “flat” org., “family wage” system to nonstandard work, lifelong “vertical” career to horizontal movement

Demand for labor: physical ability to “creative class”

Creative Class


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Creative Class workers for whom creativity and knowledge are

central to their productive work In high demand by companies May change jobs often, experience insecurity,

work longer and harder than in past.

Theorizing the Transition to Capitalism


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Adam Smith Argued that competition, driven by people’s

inherent self-interest and drive to trade, helps maintain a cohesive society

Stated that specialization is a key to increased productivity and innovation, and that the use of money, as opposed to barter, makes trading more efficient



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Georg Simmel Evolution of monetary payment systems as force

to depersonalize exchange Piecework Wage labor Salary

Saw as positive change separated public and private spheres gave workers more freedom to enjoy leisure



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Karl Marx Argued that capitalism created alienation from

the products the production process one another themselves and their creative tendencies

capitalism would ultimately destroy itself working class would rise against the capitalist class,

leading to socialism and then communism



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Max Weber Linked rise of capitalism to ideas, specifically ideas

and beliefs connected to Protestant Reformation Saw capitalism negatively because he thought

people became obsessed with working and making money that they could never enjoy

Recent Trends in Capitalism


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Recognizing the family The Ford Motor Company’s “ family wage”

Favored married men with children over single men or married men without children

reinforced notion that women should not work. wage structure was one factor that made women see

marriage as way to have financial security; did not see work as lifelong choice.



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Work hours and policies Americans work longer hours have fewer vacation benefits less generous family leave policies. more American companies are offering family friendly

policies such as flextime and “flexspace,” employees are not taking advantage of them in great

numbers.



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Women’s employment employed mothers are less depressed and have higher self-

esteem than they are also more likely to feel tired and anxious and they have higher divorce rates.

Recent Trends in CapitalismGlobalization – global economic interdependence Globalization is not new, but has some new elements

Dominance by corporations, not individuals or countries Communication and technology allow wider outsourcing

of jobs, more worker awareness of lifestyles in IAC’s Labor purchased from DC’s includes skilled and

educated International trade, exchange rates, are more important to

national economies; more influenced by speculation

The Reign of the Corporation


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corporation is a “juristic person” has legal rights, duties, and responsibilities of a

person Is owned by shareholders Usually overseen by board of directors Individual members are not held liable for

corporation’s behavior or debts This gives corporations great power

Importance of corporations More powerful than some countries In U.S., top 100 corporations control 9% of assets

Top 100 are only .1% of all corporations in U.S. Political influence

corporate officers become politicians, politicians own stock in corporations Corporations contribute to campaigns and interest groups

Interlocking directorates – same individuals on multiple boards of directors

Interlocking Directorates Involving Citigroup Corporation, 2005

Multinational Corporations Extremely wealthy and powerful Usually based in industrially advanced

country (IAC) Purchase labor and raw materials from

developing countries (DC’s) Provide jobs in DC’s Slow economic growth in DC’s by keeping wages

low and suppressing competition May move jobs out of IAC’s

How Rich are Multinationals?Corporate Assets, 2005 GDP, 2005

Walmart, $259 billion Bangladesh, $259 billion

Exxon Mobil, $213 billion Greece, $212 billion

General Electric, $134 billion

Israel, $121 billion

IBM, $89 billion New Zealand, $85 billion

Home Depot, $65 billion Syria, $58 billion

Bank of America, $48 billion

Ethiopia, $48 billion

Importance of Banks and Financial Institutions Economic production and investment depend

on credit and finance. Lending = creating money Banks & financial institutions own most

corporate stock; concentration is increasing. Corporations’ and banks’ directorates

interlock If one bank fails, others may follow, then

entire industries

Work in the Capitalist Economy Occupations often divided among sectors Primary sector – direct involvement with natural

environment (agriculture, timber, mining) Secondary sector – manufactured products Tertiary sector – services Today most jobs are in tertiary sector

More white collar employment More lower paying jobs

Work in the Capitalist Economy Industries also divided into sectors Core – large dominant firms – higher pay and

benefits, advancement, security, more white males employed in these positions

Periphery – smaller competitive firms – lower pay and benefits, less opportunity for advancement, less security, more women and minorities

Today, not even core jobs are secure, real wages have dropped, fewer “good” jobs

Work in the Capitalist Economy Downsizing - reduction in a company’s

workforce Believe this will cut costs and increase profits Believe fewer people can do more work

Contingent employment – part time, short term, or contract Includes outsourcing and offshoring over 1/3 of employees are contingent More minorities, women, youth, elderly

Predictions for the future Companies continue to be lean, adaptable, flexible Employer-employee relationship no longer based on

trust or loyalty (“implied social contract” is gone) Greater polarization between those with capital and

those without, growing sense of injustice Higher stress, lower satisfaction Some new opportunities for creative entrepreneurship More career changing over life cycle

Capitalism and the Economy Chapter 10 Lecture PowerPoint © W. W. Norton & Company, 2008.

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